The U.S. Federal Reserve's Federal Open Market Committee (FOMC), which last met from January 29 to 30, is reportedly divided on the subject of whether or not the American central bank should continue providing explicit support to the economy through mortgage-backed security and U.S. Treasury bond purchases. These controversial programs, which were enacted in response to the 2007-2009 financial panic and subsequent global recession, now equate to roughly $85 billion in monetary stimulus.
The Wall Street Journal's Jon Hilsenrath reported on February 20 that several members of the FOMC remain fearful that the Fed's easy-money policy could one day lead to rampant inflation when the U.S. job market begins to improve. These concerns, which have been voiced at virtually every meeting since the first iteration of quantitative easing was launched in 2009, have so far proved overcautious. However, the source suggested that developments in the American financial markets are leading some Fed officials to believe that these initiatives could post a long-term threat to the economy.
"Several participants noted that a very large portfolio of long-duration assets would, under certain circumstances, expose the Federal Reserve to significant capital losses when these holdings were unwound, but others pointed to offsetting factors and one noted that losses would not impede the effective operation of monetary policy," stated the FOMC minutes, which were released yesterday.
Ultimately, the FOMC once again adopted a wait-and-see policy, especially as it pertains to maintaining low interest rates, which, according to Chairman Ben Bernanke, is one of the primary objectives of quantitative easing. The next meeting is set for March, when members intend on revisiting some of the expressed concerns.
Investors may want to watch these developments closely, as any pull-back of Federal Reserve support could have unintended side effects on both markets and the wider economy. To prepare for the worst, those looking to protect themselves financially may want to investigate wealth preservation methods available from GreatWealthStrategies.com today.